XP Power suffers Comet damage

XP Power’s (XPP) management was keen to get investors to think about the long game when announcing what was an ugly set of numbers for 2022.

The Singapore-based manufacturer of power converters used by chip makers, robotics firms and medical equipment companies, said that maintaining its 94p full-year dividend reflected “the board’s long-term confidence in the group’s trading prospects”.

Yet the payout will be a drag on a balance sheet that has already weakened significantly over the past year. Net debt (excluding leases) ballooned to £151mn – a sixfold year-on-year increase, or 2.68 times cash profits. 

The main reason for this is the fact that it had to book costs of £60mn relating to its legal spat with Comet (CH:COTN) after a judge in the US deemed that XP Power had stolen the Swiss radio frequency product maker’s trade secrets, awarding $40mn (£33mn) in damages and costs. XP Power is appealing against both the ruling and the amounts awarded. 

On top of this, the company spent £33mn acquiring a pair of businesses in Germany, £23mn on capex and £34mn on working capital as it negotiated supply chain disruptions. 

It booked an operating loss of £24mn (2021: £30mn profit) but said trading picked up during the year, and that it expects to reduce leverage as cash flow improves in the year ahead. 

All of this has weighed on XP Power’s share price, which is down by over 45 per cent over the past 12 months. On many metrics, the shares look cheap for a company serving fast-growth markets – they trade at 14 times forecast earnings, well below their five-year average of 19 times. Yet this is a reflection of the additional risks the company now faces. Hold.

Last IC View: Hold,4,050p, 1 Mar 2022